The Hyperliquid Policy Center (HPC) and Phantom have issued a joint letter to the Commodity Futures Trading Commission (CFTC), advocating for an urgent modernization of regulatory rules governing onchain markets. Both organizations contend that the Commission's existing regulations were architected for traditional financial ecosystems, which rely heavily on intermediaries acting as custodians of user assets. According to HPC and Phantom, these legacy rules fail to account for the unique operational reality of onchain software, which facilitates decentralized peer-to-peer interactions through code rather than institutional middlemen.
The Core Difference in Market Structure
The joint letter highlights the structural divergence between traditional finance and modern blockchain protocols. In conventional markets, customers navigate a complex web of intermediaries; brokers handle orders, exchanges facilitate matching, and clearinghouses guarantee the settlement process by holding margin and standing behind the trade. In these environments, ownership and control of funds are consistently held by entities other than the customer. Conversely, onchain markets leverage automated code to enable self-custody and decentralized trading, rendering the traditional custodial requirement obsolete while simultaneously offering the potential for increased transparency and faster settlement speeds for regulated entities.
Advocating for Regulatory Exemptions
HPC and Phantom have proposed that the Commission should grant specific exemptions for developers who create onchain protocols, provided these developers do not retain functional control over the protocols' usage. They argue that such developers should not be forced to register under the same burdensome requirements designed for legacy exchanges or clearinghouses. Furthermore, they urged the Commission to develop explicit guidance that would allow CFTC-regulated entities to integrate and leverage onchain infrastructure more effectively within their operations.
Streamlining Access and Compliance
A central focus of their proposal is the request for the CFTC to codify the relief previously granted to Phantom via a no-action letter into a formal, permanent rule. Currently, front-end wallet providers are often forced to seek individual relief from the Commission for each specific action, which creates significant operational friction. By establishing a clear rule, the CFTC could enable these providers to facilitate access to regulated onchain markets without the redundant need for case-by-case authorization. This submission serves as a formal response to a Request for Information (RFI) published last month by the CFTC and the Securities and Exchange Commission (SEC) aimed at identifying regulatory hurdles that hinder partnerships between fintech firms and traditional regulated entities.
Broader Industry Tensions
These regulatory discussions are unfolding against a backdrop of increasing industry litigation. Notably, the CME Group filed a lawsuit against the CFTC last month, challenging the agency's recent approval of perpetual futures in the US. The CME Group is actively contesting the legal classification of these products, asserting that they should be categorized as swaps rather than perpetual futures. This ongoing legal battle underscores the significant friction between incumbent financial firms and the rapidly evolving landscape of decentralized market infrastructure.
